Vol. 5 Num 70 Thu. August 05, 2004  

Has trade liberalisation helped our agriculture?

The Green Revolution in the 1960s, 1970s, and after made a great contribution to increased food production in the developing countries. The high level protection of agriculture in the developed countries also stimulated agricultural production. As a result of overproduction in some of the developed countries, international prices of agricultural commodities started to decline. In recognition of this situation, the agricultural exporting countries began to reduce agricultural protection and deregulate production control. They also started negotiation on agricultural trade in the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) to open the market with a view to reboot international food prices and increase trade. In April 1994, an agreement was signed integrating food into the global free commodity market. The principle of free market economy became applicable to all commodities including agricultural commodities.

The long-term objective of agreement on agriculture is to establish a fair and market-oriented agricultural trading system and initiate a reform process through the negotiation of commitments on support and protection. It was thought that a substantial progressive reduction in agricultural support and protection will be made over an agreed period of time that will result in correction and prevention of restrictions and distortion in world agricultural markets. Bangladesh liberalised her economy very quickly during early 1990s and continued her reform agenda even in later years, and the main objective of this piece is to make an assessment of Bangladesh's progress in the process of trade liberalisation and analyse its impact on agricultural trade and production in the country.

Commitments on agriculture
The agenda for liberalisation of agriculture consists of three components: market access, domestic support, and export competition. The provisions under market access called for reduction of tariff and non-tariff barriers. Under domestic support, countries were required to reduce trade distorting domestic supports. Under the provision of export competition, countries were committed to reduce the value of export subsidies. Being a least developed country (LDC), Bangladesh was exempted from those reduction commitments.

Market access: The Uruguay Round Agreement on Agriculture (URAoA) under its commitment on market access called for conversion of all non-tariff trade barriers into tariff equivalents, reduction of bound tariffs over time, and setting of low import tariffs for a fixed quota of import. Under tariffication, member countries were required to convert non-tariff barriers during the base period into tariff equivalents and to establish a base rate of duty for individual commodities covered by the URAoA. The average reduction of tariffs after tariffication of non-tariff barriers was set at 24 per cent for developing countries and 36 per cent for industrialised countries. Industrialised countries had a time frame of six years within which to decrease their tariff levels while developing countries had 10 years. Minimum access had to be established at not less than 3-5 per cent of domestic consumption during the base period (1986-88). As a LDC, Bangladesh was not required to undertake any such commitment, but she had to bind tariffs on all agricultural products.

Market access reform in Bangladesh began in the early 1980s with a reduction in import duties and was followed by a reduction in quotas in 1985 and a simplification of tariffs in 1986. The most intense period for trade reforms occurred in the 1990s with a movement toward lower tariff rates.

In 2002-2003, the un-weighted average tariffs for all agricultural products declined to 15 per cent from 55 per cent in 1991-92. In a similar way, the import-weighted average tariff fell to 12 per cent from 23 per cent in the same period. The magnitude of decline in tariff rates for all other commodities showed almost the same trend.

The reduction of tariff rates for most of the crops including food grains and pulses was quite significant. Under the minimum access level provision, the current access opportunity is more than the threshold for all commodities, except for potatoes and sugar.

Domestic support: The URAoA under its domestic support policies did not include expenditure on research, extension, disease control, food security, and rural development, etc (green box measures) in reduction commitments. Nevertheless, subsidies on inputs and price support for outputs were categorized under trade distorting policies and were required to be kept within the limit of 5 per cent of the value of output for the developed countries, and 10 per cent for the developing countries. The total aggregate measure of support (AMS) was to be reduced by 20 per cent for developed countries and 13.3 per cent for developing countries (with no reduction for LDCs) over the implementation period.

Bangladesh provides support to agricultural research, extension, training, marketing and infrastructure that are nondistortionary in character. These supports fall under the green box area and are excluded from AMS reduction commitments. During the 1970s and early 1980s agricultural inputs were heavily subsidized and price support for agricultural output were also significant. These subsidies and supports were gradually reduced and became quite insignificant during the 1990s. Evidence shows that Bangladesh did not provide any price support to any of the agricultural commodities after the 1995-96 financial year. Subsidies on fertilizer and irrigation accounted for 2.53 per cent of the value of unassisted output in 1988-89, which declined gradually to less than one-tenth of one per cent in 1998-99. The calculated producer subsidy equivalent (PSE) slightly increased over first three years of the new millennium, but still it hovers around a half of only one per cent, very insignificant in comparison with that of about 40 per cent for European Union and 35 per cent for OECD countries.

Export subsidies: Under the commitment on export subsidies members were required to reduce the value of mainly direct export subsidies to a level 36 per cent below the 1986-90 base period level over the six-year implementation period, and the quantity of subsidised exports by 21 per cent over the same period. In the case of developing countries, the reductions were two-thirds of those of developed countries over a ten-year period and subject to certain conditions, there were no commitments on reduction of the costs of marketing of agricultural exports or internal transport and freight charges on export shipments. LDCs were not obliged to reduce export subsidies but were required to freeze such subsidies at the 1986-90 period levels.

Bangladesh declared no export subsidies in her schedule of UR commitments. However, there may be some elements of subsidies enjoyed by the country's export regime. They include a very small amount of direct subsidy on export of vegetables, export subsidies in the form of lower interest rates than market interest rates, tariff concessions on import of capital machinery, and some sort of subsidy on export credit guarantee schemes.

It was interesting to see what has happened to Bangladesh economy after showing adherence to WTO rules on liberalisation of trade in agriculture. Total agricultural export increased by about 2 per cent and agricultural import increased by 9 per cent per year over the last eleven years (1991-92 to 2001-02). Agricultural imports superseded the export figure in 1995-96 and after that the import curve continued to flow over the export curve for rest of the years.

The total export earnings of the country increased by 11.9 per cent, while import expenditure increased by 9.59 per cent over the last eleven years. It may be mentioned that most export earnings in Bangladesh come through garment industry, where the bulk of the export earnings go back out of the country to pay for imported raw materials and machinery.

The average annual growth rate of export earnings were negative for jute, jute products, tea, and total crops. However, the annual growth rate of export for greater agricultural sector was positive mainly due to high export earnings from frozen food, and hides and skins. The growth rates of import for all agricultural commodities were positive excepting wheat, and were very strong for pulses, maize, edible oil and raw cotton. The situation is unlikely to be changed unless duty-free and quota-free access of Bangladeshi products are ensured to developed countries.

The WTO member countries attending the ministerial meetings recognized the special difficulties faced by LDCs and called for providing more technical assistance to LDCs for trade development. They also appealed for enhancing the magnitude of food aid and concessional loans to LDCs for their adjustment to a new global situation. Bangladesh, as a LDC, was supposed to be a beneficiary from those assistance. However, the country has not much benefited from such benevolent aid and assistance commitments in recent years.

The annual growth rate of foreign assistance has declined by 1.7 per cent over the last eleven years. The amount of foreign loans has slightly increased, but the amount of donations significantly dropped during the period of liberalisation. It also appears that total import increased over the last decade and commercial imports crossed the line of food aid in 1994-95, reached its peak in 1998-99, and remained above the line of food aid till the last year of observation. The evidence confirms the view that Bangladesh had to face more loss than it enjoyed gains from eventualities of recent trade liberalisation.

The impact of tradelibera-lisation and reform was not very positive on macro-economic performance. The growth rate of GDP stagnated at around 5 per cent and the overall budget deficit did not show any sign of improvement. The amount of foreign exchange reserve increased in absolute terms but declined in relative terms. The rate of inflation has, however, declined over the years. The growth rate of real prices of most of the agricultural commodities has also declined.

Food self sufficiency and diversification
The government of Bangladesh is committed to achieve self-sufficiency in food production. To that effect the farmers, agricultural scientists and policy makers are working hard for years together. Very recently, the country has produced little surplus of food grains, but there is still a huge deficit in production of other crops. The deficit is much larger for pulses, edible oil, vegetables, fruits, and non-crop agricultural products, which has accentuated over time with the increase in population. It is possible to have a significant increase in production of these crops and non-crop sub-sectors provided new technologies are generated and policies are framed conducive to technology adoption, which will promote diversification. This will require higher investment in agriculture and more support and subsidies in the process of technology generation and adoption.

Bangladesh liberalised her economy very quickly over 1990s through reduction of tariff rates and withdrawal of agricultural subsidies. However, there was hardly any positive impact of the liberalisation efforts on the agricultural sector of Bangladesh. In fact, the growth rate of agricultural imports has much superseded the growth rate of agricultural exports and the country became more dependent on commercial imports of food grains and other agricultural commodities. Thus it appears that the country should now pursue a policy of protecting her agricultural sector and increase support and subsidies on yield increasing technology generation and adoption to meet the food deficit and accelerate the speed of agriculture diversification.